Meredyth McKenzie

Monday, 26 October 2009 20:00

The elephant in retail

You may think that the discount you receive at a hotel or on an airplane is just pure luck or part of a special promotion, but it may instead be a form of retail nepotism. And if the practice is taking place at your business, it could be alienating your customers.

While retail nepotism is an under-researched topic, it occurs every day in the marketplace as service providers give customers who share similar socio-collective traits — such as ethnicity, sexual orientation or club membership — unauthorized financial benefits or service improvements.

“Retail nepotism is the great elephant in retailing,” says Mark Rosenbaum, Ph.D., a Fulbright Scholar and assistant professor of marketing at Northern Illinois University who has done extensive research on the topic of retail nepotism. “Most people believe that consumers can receive discounts purely because of socio-collective bonds with providers. But consumers also don’t have their suspicions confirmed, yet they know that this type of discrimination is taking place.”

Smart Business spoke with Rosenbaum about retail nepotism and how you can stop it from occurring by educating employees.

What factors encourage retail nepotism?

One factor encouraging retail nepotism is that consumers seek community in the marketplace. There’s also a biological influence, which says that humans are inclined to display acts of favoritism toward family members.

Research has broadened the concept of nepotism to include people you like and who are similar to you. Humans have an incentive to extend favoritism to family members or preferred others.

There’s another research trend that says that consumers are looking for family or communal relationships in the marketplace. This has to do with people moving around the country and the decline of the community and traditional family. People will then form tribes based on common consumption.

For example, there are Harley Davidson rallies and Web sites based upon consumption, such as Nutella or M&Ms fans. People will form these communal bonds in diners, health clubs, gyms and other places.

Most people see these tribes as favorable and positive, but there is a negative aspect because they don’t always support the brand. For example, Apple fans don’t always support everything the company does. There’s also the idea that some tribes engage in rituals of solidarity — taking care of like-others. Quite simply, employees may be thinking, ‘Those who look like me, think like me, talk like me and act like me are probably most genetically close to me, and therefore, I should be nice to them.’

How does retail nepotism differ from market segmentation?

Market segmentation is based on objective measures. Customers are extended favoritism based upon measures that are created out of authorized managerial procedures. For example, managers will typically authorize different benefits based upon things such as loyalty status or dollars spent.

With retail nepotism, customers receive unauthorized benefits that are not approved by corporate management. Unauthorized discounts are determined by the service provider in a haphazard, almost uncontrollable manner, making retail nepotism a form of market discrimination. But sometimes these consumers receiving discounts — usually a marginalized group that dominates a specific retail setting — may turn the tables. Instead of being discriminatory victims, they can actually become discriminatory agents.

Where does retail nepotism occur, and what are the signs that it is occurring?

Retail nepotism will occur among marginalized ethnic groups in a society. When you don’t represent the majority or are a marginalized group or subculture, you actually appreciate the sense of community. This is heightened when marginalized groups are among like-others in a situation where they know they’re in the majority.

For retail nepotism to occur, the service provider must have some flexibility in either pricing or in enhancing service quality. It wouldn’t occur in situations or positions that are completely micromanaged, such as sales cashiers. It most likely will occur in hotels, airlines, bars and restaurants, health care — in other words, retail environments that still have a great deal of personal contact.

How can you prevent retail nepotism from occurring?

You need to bring it to the forefront and talk about it with employees as a form of discrimination. Employees need to understand that financial discounts must be authorized based upon customer segmentation.

You also need to be aware that like-service providers may simply enjoy working with like-customers to make it a win-win situation for both parties. For example, some banks in Germany now have Turk bankers working with the Turkish community. But because there’s a biological component to retail nepotism, where people are motivated to take care of others like them, it’s almost impossible for you to control this 100 percent.

Why is understanding retail nepotism important?

Retail nepotism is a form of marketplace discrimination. Even though the groups receiving it are satisfied and enjoy the benefits, it’s still a form of discrimination. Companies with personnel who engage in retail nepotism could receive bad press and word-of-mouth from disgruntled customers. You could also lose business from the consumers who didn’t receive a discount. The damage that could be inflicted on a company’s brand is staggering. Addressing retail nepotism through formalized employee training programs is more important than companies realize.

Mark Rosenbaum, Ph.D., is a Fulbright Scholar and assistant marketing professor in the department of marketing at Northern Illinois University. Reach him at (815) 753-7931 or

Monday, 26 October 2009 20:00

The face of your company

You want to make sure your sales force will be able to sell your service or product well and also present a positive image of your business. Particularly in today’s economy, when you’re looking to boost sales and revenue and gain new clients, it’s important that your sales force is in tiptop shape and armed with the right tools.

“Great product concepts are one thing, but great product successes are another,” says Jessica Ford, director of sales and operations at Ashton Staffing. “The difference usually centers on sales. The magic may be the brand, but the carpet is the sales force. Your brand can’t fly without it.”

Smart Business spoke with Ford about what to look for when hiring sales reps and how to best train sales team members.

What are some key qualities to look for when hiring sales reps?

You need sales reps to be hunters and not farmers. The sales force can make or break a business, especially in this economy. You need a sales force that will go out and get new customers and not just focus on your current customers. Customer service is important, but you should have reps that are solely focused on that aspect and others who can go out and drive the business. Good sales reps also need to be chameleons who can mold themselves to different personalities and backgrounds when meeting with different perspective clients.

How can you run a successful sales rep hiring process?

First, look at the candidate’s resume. If he or she has jumped around more than every few years, you should pass that person by. No company would allow a superstar sales rep to just leave the company without a good reason. Sales reps who jump around may have been terminated or resigned from a previous position because they could not generate enough business to meet goals.

Most sales positions are minimally supervised on a day-to-day basis. Sales reps are given company credit cards, drive company vehicles and are expected to work independently to some degree. A potential sales rep should have a credit check, criminal background check, and behavioral and personality testing. This may seem like a lot, but you need to know that the face of your company is honest and responsible.

Your top performer should also complete the personality test. This gives you and your recruiter a clear understanding of the personality that will best match the position and your company culture. Those who cannot pass this testing should not be considered for an interview.

No matter what a candidate has sold in the past, one question will show you if the candidate is the right salesperson for your company. After the candidates finish telling you what a great closer they are, hand them a pencil and tell them to sell it to you. The majority of interviewees will start pitching and continue to talk as you sit there bored.

A top-performing salesperson will not pitch, but will start out by asking you questions about your business, how often you order pencils, etc. There are two types of sales representatives — those who pitch and those who take the time to understand buying motives and properly qualify potential clients.

How do you train and develop sales team members?

Sales managers or vice presidents play vital roles in identifying, training, supervising and mentoring sales reps. They can also help sales reps close large and difficult customers. Sales reps should be introduced to all new customers to check upon the veracity of the sales activity and solidify the relationship with the new customer. It also provides bonding between the sales management and rep that will help with customer retention.

Investing in your employee training is the best money you will spend today. Make sure your sales rep is completely trained on your product. You never want to send out a rep who cannot answer questions regarding your product. Product training and knowledge of your company should be the first step in a new sales rep’s orientation and training process.

How do you develop incentives as a way to reward top performers and drive sales reps to work toward those incentives?

People work to be paid. New sales reps should be offered a minimal salary with a generous incentive plan for new business. Incentive programs should target performance and not activities. Reward sales reps for new business immediately and turn over the account to either a service rep or the sales manager. Provide small incentives for retention of one to three months. The sales rep will feel free to pursue other business full time.

Employees and sales reps are extremely efficient in gaming compensation systems. Sales reps quickly determine which activities and outcomes are compensated and which are not. If more pleasurable and lower effort activities, such as lunching with an existing client, are equally compensated with a less pleasurable activity such as cold calling, it is not hard to predict which activity will continue and which will diminish.

Jessica Ford is the director of sales and operations with Ashton Staffing. Reach her at (770) 419-1776 or

Friday, 25 September 2009 20:00

Smart decisions

Constant communication is one of the keys to helping employees understand the many facets of health care insurance. In order to make the right health care decisions, employees have to understand their plans’ premiums and co-pays.

Besides making proper health care choices, engaged employees can in turn become advocates for your health benefits plan.

“You create a wedge between workers and management that can result in dissatisfied employees if you don’t help your employees understand the benefits and how to get value out of them,” says Pat Nelson, director of client service at AvMed Health Plans.

Smart Business spoke with Nelson about how to engage employees to make buying decisions that will impact premiums.

What should employees know about health care premiums?

Employees need to understand the entire premium makeup and not just their contribution. For example, many employees are stunned to find out their employer is paying maybe $400 for each employees’ coverage, in addition to the employees’ $100 contribution. So it’s a $500 premium and not $100.

You also need to help employees understand any premium increases proposed by the carrier. For example, if last year’s premium was $500 and the carrier proposed a 12 percent increase, that becomes a $560 premium. But if you keep your contribution stable at $400, the employee contribution goes from $100 to $160. It looks like a 60 percent increase, when in reality it was only 12 percent. So employees need to see the whole picture.

You also need to show employees what you did to mitigate that increase. So rather than pass along a 60 percent increase in employee contribution, you may have increased hospital or prescription co-pays or added a deductible for high-tech radiology services. You kept the contributions the same, but the benefits changed a bit.

How can you engage employees to become better health care consumers?

Communicate and educate. You need to remember that not everybody will jump on the bandwagon, and different things motivate different people at different times. But you can get a head start on impacting buying decisions by providing information that’s easily understood and accessible. Provide employees a list of local facilities and the cost of selected procedures. This makes employees more comfortable to ask questions when they need health care services.

You have to have the information available. It’s like furniture ads in the newspaper. You don’t usually pay attention to the ads if you don’t need furniture. But if you do, you know there will be plenty of information in the newspaper. Just keep publishing and putting information in the same place, so if an employee is diagnosed with a disease or condition, he or she knows where to get information.

Promote the use of generic drugs to help make employees comfortable in talking to their doctors about using generics. Your physician will be vocal if he or she has a medical reason for prescribing a name brand or specific medication.

How do you take information from employees to impact your benefits and premium?

You have to listen to all employees, not just the vocal minority. Given the opportunity, most employees would gladly trade a lower monthly contribution for a higher deductible on hospitalization, because very few people are hospitalized. So you’ll impact few people if you increase hospitalization co-pays. The few people affected might be angry, but this is a better solution than increasing prescription co-pays, which affects all employees. Higher prescription co-pays might also discourage usage, and you don’t want your employees to become noncompliant because that could lead to higher medical costs.

You may want to distribute a survey to employees to find out what they like or don’t like about their benefits plan. Distribute the results to employees with annual benefits information, and make sure to tell them you were listening and what changes you made because of their feedback.

Why is it important for employees to be engaged and understand their health care?

We all use health care resources. Those who are healthy want to stay healthy, and those who are not want to be healthy. You have to keep the information flowing because we’re not all in the same state of acceptance of health at the same time. The old adage about word-of-mouth being the best advertisement is true. If you engage employees, they can engage their spouses and dependents and, before long, everyone is involved in a health care movement.

Health care isn’t the responsibility of employers, doctors, pharmaceutical companies or insurance carriers; it’s everybody’s responsibility. If you engage employees and help everyone understand more, bit by bit, everyone will become stronger and more engaged.

How can engaging employees help you control health care costs?

You do want employees to use their benefits, but you want them to understand their benefits and be able to make wise choices on when and where they receive care. If you have engaged employees, they know, for example, to go to an urgent care center or doctor’s office instead of an emergency room if they think they have a non life-threatening illness. By educating and engaging employees you help get them to the right care at the right time at the right place. That makes it a win-win for the employee, employer and carrier.

Friday, 25 September 2009 20:00

Understanding nexus

Due to current tough economic times and budget shortfalls, state taxing authorities are becoming more aggressive in identifying and collecting tax revenue.

“The states are looking for ways to maximize their tax revenue during these tough times,” says Marty Doerr, CPA, member in charge of tax services at Brown Smith Wallace LLC. One such avenue is for the state to determine that nexus exists for a nonfiling taxpayer.

It is a good idea to be prepared and proactive in this area.

“It’s important for a company to do a self-review, identify exposures and make sure everything is filed properly before the state does it for you,” says Pam Huelsman, manager of state and local tax services at Brown Smith Wallace.

Smart Business spoke with Huelsman and Doerr about what to expect during a state nexus inquiry and what to do if you think you have nexus and have not filed properly in the past.

How do you determine if your company has nexus — the minimum level of business activity subjecting you to tax in that state?

You need to know where you have employees, property and customers. You need to know what activities you’re conducting and where. You need to look at where you are performing services or soliciting orders. You should know where you are registered to do business — not just where you are conducting business. In some states, simply registering to do business can create nexus.

You can expect the state to ask a lot of questions regarding each of these areas with the aim of maximizing its tax revenue. It is important for a company with multistate operations to identify the nature and extent of its contacts with the states. Since each state’s laws for determining a filing obligation vary, a tax professional experienced in state and local tax can help you ensure that nexus is properly determined.

How does a state identify companies that have created nexus but not filed?

There are many ways to discover a footprint left in a state. On Sept. 14, California announced that the Franchise Tax Board annually reviews more than 5 million income records from government agencies and financial institutions, and matches them against tax records filed to determine whether some businesses have yet to file. As part of this annual effort, California collected approximately $31 million last year from businesses that failed to file tax returns. The states also rely on the dreaded state nexus survey. States send these directly to the company and include several pages of detailed questions regarding what type of business you do and where you do it.

Currently, more and more taxpayers are receiving such surveys. Once you receive a survey from a state in which you do have nexus, your options for a painless exit become very limited.

States may compare data among various agencies, such as payroll withholding records or secretary of state registrations, to their department of revenue records. They’re looking for a mismatch, which can then trigger a nexus survey.

The state may also use other company audits to identify vendors and customers and cross check these to make sure they are filing in the state. There’s also a lot of information auditors can find over the Internet.

Auditors may simply observe in-state activities of potential nonfilers. For example, in one instance a revenue department official rummaged through business cards dropped in local restaurant fishbowls for free meals. This let him know that the company had been in the state and would likely be back.

How far back can a state go to collect tax if nexus is determined?

Unfortunately, the state can go back to the date the company began doing business in that state. Nonfilers do not have a statute of limitations. This can result in a lengthy look-back period and assessments that include all back taxes, with costly interest and penalties.

In one of the most aggressive assessments we’ve seen, an auditor determined that a nonfiler had an income tax obligation, then issued a 20-year tax assessment with interest and penalties.

This is certainly a situation that companies want to avoid.

What should you do if you suspect you haven’t filed properly in the past?

Most states offer some type of voluntary disclosure or amnesty program. These programs encourage nonfilers to come forward and allow for a shorter look-back period, usually three to four years. The programs will typically offer a waiver of penalties and, in some cases, a reduced interest percentage. The important thing here is to stay in front of the state, because if a state contacts you first, these programs might not be an option.

What is Public Law 86-272, and does this prohibit the state from imposing a tax?

Public Law 86-272 prohibits a state from imposing an income tax if the company’s only connection to the state is the solicitation of orders sent out of state for approval and fulfillment. However, it is important to understand the limitations of this protection.

The activities protected under this law are limited to solicitation and only apply to a seller of tangible personal property.

You don’t fall under the protection of 86-272 if you’re selling services, intangibles or some other form of transaction. It applies only to income tax and not to sales tax or any type of non-income tax, such as franchise or gross receipts tax.

It is imperative for a company to understand where its business activities are taking place and how those activities impact its state tax filing obligations.

Pam Huelsman is manager of state and local tax services at Brown Smith Wallace LLC. Reach her at (314) 983-1392 or Marty Doerr, CPA, is member in charge, tax services at Brown Smith Wallace LLC. Reach him at (314) 983-1350 or

Friday, 25 September 2009 20:00

Surety bonds

Today’s construction market is the toughest in years. Contractors are moving from private to public works and these sectors have significant differences. These include the bidding process, listing of subcontractors, owners with different agendas, high liquidated damages and higher levels of inspection. On public works contracts subcontractors and suppliers have no lien rights, so in 1935 the Miller Act was passed to cover federal projects, and all states have similar requirements.

A surety bond is required for all public works projects, which assures that a contractor will complete a project in accordance with contract terms including paying subcontractors and suppliers. Private owners should require bonds on their projects to protect them from a contractor’s failure to perform and pay subcontractors and suppliers.

“A bond not only protects the owner but also the subcontractors and suppliers on the project,” says John M. Garrett, CPCU, president of GMGS Insurance Services. “Private owners should be very wary of any contractor who cannot provide a bond.”

Smart Business spoke with Garrett about the surety bond process and what happens if you don’t have a surety bond in place.

What items will be examined during the surety bond process?

The surety decision is based on a review of net worth, working capital, experience and reputation of the construction company and its owners relative to the amount of credit granted. The surety will perform a complete credit analysis, looking at items such as prior projects, reputation with owners and bank line (how large it is, usage and security on the line). Does the lender have accounts receivable? Sureties have priority on accounts receivable on bonded projects, which many bankers don’t realize. This can lead to a reduction or disappearance of the bank line when engaged in public works.

Sureties will also look at the contractor’s litigation history. Net worth that is driven by assets such as heavy equipment book or market value might be suspect. The value of equipment could be impinged by the requirements in California to upgrade and the current economy. Sureties will also insist on full, personal indemnification. This includes indemnity of all the significant owners, indemnification of the owners’ spouses, cross indemnity of all entities and indemnity of any trusts. The surety must ensure that the contractor is fully committed to his or her company and all its obligations. Surety is a credit relationship, not insurance. If there is a loss, the surety expects to recover from the contractor.

The cost of a surety bond depends on the size, because the rate goes down as the size of the bond increases. It is about 1 percent, sometimes higher, depending on the quality of the contractor. The cost of the bond is paid by the owner.

How do you prepare for the current challenges in the construction market?

You should partner with a qualified accounting firm. The surety will insist on having a firm involved that can present a comprehensive financial statement including a work in process statement that ties into the balance sheet and profit and loss statement. You can anticipate a review level statement will be the minimum level requirement and a full audit likely as you expand the program. You also need to partner with a qualified construction law firm that is familiar with the public works environment. These attorneys understand how litigious this environment is and can advise you on the ramifications of construction litigation issues.

You should have a professional surety agent on your team, one who is a member of the National Association of Surety Bond Producers. They have been involved in the surety and public works environment for years and can offer invaluable counsel.

Given that you must list your subcontractors on bid day you should require in your scope that major subcontractors also provide bonds. If you do not do this at bid time, you cannot require it later.

Are these bonds always required?

Bonds are required by federal and state law on public works projects. Surety bonds protect the suppliers and subcontractors because they have no lien rights. However, it does not protect the general contractor. Given the budgetary shortfalls of the current economy, public entities may not be able to pay contractors for a project. You should be careful when entering into a project to make sure the entity has the sufficient funds, particularly if change orders might be involved. In California if general contractors do not get paid, they still have the obligation to pay the subcontractors and suppliers. This obligation extends to the surety.

What can happen if you don’t have a surety bond in place for a project?

If the contractor or subcontractor defaults, your contract price can escalate because you have to bring another contractor or subcontractor in to complete the project. You may end up paying for work, supplies and materials twice, thus increasing your project costs.

A surety will ultimately step in if the contractor or subcontractor defaults. The surety will determine if there’s a valid claim, examine the situation and decide how to proceed. There are several actions the surety can take:

  • Bring in another contractor or subcontractor to complete the project
  • Have the owner/contractor bring in other contractors to complete the project
  • Negotiate with the owner/contractor to buy out the damages
  • Continue to finance their principal through the work

Sureties generally prefer to keep the existing contractor on the project and finance it through completion, assuming that they still have a viable contractor.

John M. Garrett, CPCU, is the president of GMGS Insurance Services Inc. Reach him at or (949) 559-3362.

Friday, 25 September 2009 20:00

Looking ahead

Many baby boomers are starting to think about retirement, and that means looking ahead at health care options. And for some, one of those options may no longer be full coverage from a former employer, as some employers are discontinuing health care coverage to retirees because of the associated costs.

“Many employers instead are giving employees a stipend, say $300 or so, to go out into the open market to purchase coverage on their own,” says Joan Budden, chief marketing officer at Priority Health. “These employees have to be educated on the various products and options to make informed decisions.”

Smart Business spoke with Budden about the coverage options available to retirees and how to find the one that’s best for you.

What types of plans are available to retirees?

Some employees get coverage through their employers. In these instances, it’s often a benefit design supplement to Medicare so that it looks like the coverage they had when they were working. This is now being used less frequently in the marketplace.

Other options include employers giving employees a defined contribution toward the purchase of their retiree coverage and sending them out into the open marketplace. When retirees have this situation, they can choose among several different types of Medicare Advantage plans — private fee-for-service plans, Preferred Provider Organizations (PPOs), Health Maintenance Organizations (HMOs) and point-of-service organizations.

As an alternative, they can choose traditional Medicare, a Medicare supplemental plan and a separate Part D prescription drug plan.

These all have varying degrees of networks and benefit designs that people can purchase from a variety of carriers.

What are the differences between Medicare and Medicare Advantage?

Medicare is a government-sponsored program with several parts. Part A is hospital coverage, Part B is physician and outpatient coverage, and Part D is drug coverage in the marketplace. Medicare supplemental fills in the co-pays for the government-sponsored program.

Medicare Advantage — referred to as Part C — combines Part A (hospital), Part B (physician) and D (drug) coverage to form a new type of plan. It’s a private plan that contracts with the federal government under the approval of the Center for Medicare and Medicaid Services (CMS) to provide the health care coverage.

Medicare Advantage plans typically offer more generous coverage than original Medicare does. Medicare Advantage plans are a great value for retirees seeking coverage. Monthly premiums tend to be less expensive than many employer-funded options and Medicare Supplemental plans, and retirees participating in these have many options to choose from.

What are the costs associated with the different plans?

Medicare Advantage plans can have a range of costs, from a no-cost or zero-dollar premium for a lean plan up to $200 or more per month for a benefit-rich plan.

If retirees receive a stipend for health care coverage, how do they begin the process of determining which coverage is best for them?

Retirees may want to work with a consultant, who will guide them through the process of finding a plan in the open market. As a retiree, you need to take an active role in making your own decisions.

You can go to and find background information on the quality, cost and benefit designs of the different plans.

You can also contact the health insurance companies directly to receive information on the various plans and work with an independent insurance agent to determine the best form of coverage to meet your needs.

There are a variety of options, and this is an important decision that will affect your quality of life after retirement. You should look at the plan’s network and the type of coverage — monthly premiums, co-pays, deductibles and prescription coverage — before making a decision.

It’s such a personal decision because every person has different health care needs. You need to find a plan that best meets your needs so that you will be a satisfied customer.

What are the benefits of receiving coverage from a private company?

One of the advantages is that you’re dealing with a business right in your community. These health plans know the local providers and have contracts with them to help employees make the most of their resources.

You also receive much better preventive health coverage. Such plans offer access to care, and case and disease management programs that can help people with chronic conditions better manage those conditions.

You can benefit because the health plans are competing with one another to outdo their competitors in quality, cost and service.

Therefore, you will benefit from an incredibly responsive system seeking to gain and retain your business.

Joan Budden is chief marketing officer at Priority Health. Reach her at or (616) 464-8703.

Friday, 25 September 2009 20:00

Government contracting

When you think of government contracting, you may think of agencies supplying items such as construction projects, airplanes, missiles and uniforms to the government. But new opportunities in this economy have created a need for a wide variety of products and services.

“This is a unique opportunity to sell your goods and services to government agencies,” says Michael Caputo, chair of the government affairs practice group at McDonald Hopkins LLC. “This has resulted from a combination of a reduction in business-to-business opportunities and an increase in government funding available for businesses through the American Recovery and Reinvestment Act.”

“There needs to be a strong commitment by your company to be a government contractor,” adds Michelle Kantor, member of the construction law practice group at McDonald Hopkins LLC. “That means committing personnel and resources to perform a variety of tasks.”

While government contracting can offer you new business opportunities and clients, it is not easy work and you are subjected to more intense scrutiny. You should not enter into it unless you are prepared to invest the time and energy to fully understand the rules and regulations involved with it.

Smart Business spoke with Caputo and Kantor about government contracting and the benefits and risks involved with it.

What is involved in government contracting?

There are a variety of tasks that must be performed and requirements that must be understood by government contractors. These include looking for opportunities and bidding on solicitations, complying with insurance and bonding requirements, understanding the required regulations, and developing relationships with subcontractors or suppliers to provide responsive and responsible bids to the government.

A crucial element is understanding the regulations and obligations required of a government contractor. You need to go into that relationship with eyes wide open.

Once you have made the commitment, you need to formally register as a government contractor and market yourself appropriately. We recommend that you position your company to maximize the opportunities available through government contracts. You also should make sure you have the capacity and capability within your business to perform this type of work.

What types of regulations are involved?

Regulations vary depending on the public agency and by the type of purchase. There are terms and conditions that both parties are bound to, just like in any contract. The requirements are broad and might include how the work is bid, price evaluations and preferences, qualifications of your staff, number of years your company has been in service, set aside and sole source contracts, and rules on joint venturing work.

What is the typical time span?

It depends on the type of contract. Every contract has some type of limitation, but depending on the type and scope of work involved in the solicitation, the contract can often be renewed. The length can range from a multi-year agreement if it is an ongoing need, or a shorter time period if it is a more specific task. Contracts might even be for one-time purchases, such as new office furniture.

What risk factors are involved?

If you are not a seasoned Federal Contractor, we recommend that you seek assistance from legal and business consultants that are familiar with the government process. The contracts can be several hundred pages that all contain risks and liabilities to which you will be held accountable. There can be serious consequences for failure to comply with a government contract, from losing the right to bid on work to severe penalties including potential criminal prosecution.

You need to understand the issues, such as bidding regulations, ethics policy mandates, payment requirements, utilization of women and minority businesses, export control laws, purchasing laws and regulations that must be followed regarding the performance of your work.

How does teaming with minority and diversity contractors come into play?

Women, minority, disadvantaged, veterans, persons with disabilities, SBA 8(a) and HUBZone contractors bring a lot to the table both in innovation, commitment of local employment and competitive pricing. The Small Business Administration is required to set aside a percentage of work for veteran, women and minority-owned and SBA 8(a) small businesses. There are also numerous government programs that take small business concerns into account and allow them to team with larger businesses to perform contracts. These opportunities include the mentor protégée program, teaming agreements, joint venture agreements and subcontracting arrangements.

Teaming also provides larger companies that have no government work the ability to gain experience on the government level. There are strict legal requirements that must be met in order for these arrangements to be accepted by the government. You need to consult with an expert before teaming with these diversity contractors to make sure the regulations for any particular solicitation allow for that type of teaming agreement.

Businesses are also seeing a greater value by becoming certified as a women, minority and/or disadvantaged business enterprise. HUBZone, SBA 8(a), disabled, or veteran -owned businesses, even those who never thought about public contracting in the past, can take advantage of their designation through a variety of set aside programs both in the government and private sector. These certifications offer tremendous opportunities to contractors in the form of sole source, set-aside, mentor-protégé joint venture and other teaming arrangements.

Teaming with these types of suppliers and contractors can also give you the opportunity to present a new competency, while cutting costs and adding value to your customers.

Friday, 25 September 2009 20:00

Fifth Third Bank on small business lending

The Small Business Administration is offering new initiatives, making this a great time to evaluate whether you qualify for funding under the programs.

The initiatives, created as part of the American Recovery and Reinvestment Act, are providing additional capital to small businesses and have led to a greater interest in the SBA program, says John Guy, senior vice president for SBA and alternative lending at Fifth Third Bank. Lending has increased about 50 percent since December, and about 850 lenders have re-entered the program, many after not making loans for more than a year.

“It’s one of the most exciting times for the SBA,” Guy says. “The changes are expected to enable about 70,000 more businesses to qualify for SBA financing.”

Smart Business spoke with Guy about how business owners can take advantage of the new initiatives.

How will the SBA’s new initiatives impact small businesses?

The SBA is trying a number of different things to improve the ability of banks to lend and borrowers to qualify for new funding or additional amounts not offered through conventional loans.

The first change impacts both the borrower and bank. The SBA waived the borrower’s guaranty fee, which ranged from 2 percent to 3.75 percent and was tied to the guaranteed amount. Paying the fee was a major objection for a lot of borrowers when determining whether to do an SBA or conventional loan.

On the bank’s side, the guaranty for the 7(a) program, one of the main SBA programs, increased from 75 percent up to 90 percent. This improved the bank’s willingness to do a loan.

An alternative size standard was also created for the 7(a) program. The standard had historically been solely based on company size or number of employees, which was different for each industry. Now the program has an alternative standard, which is based on net worth and average income.

This is similar to the one for the 504, the other major SBA program. Now for both programs, borrowers can have net worth of at least $8.5 million and average income of $3 million over the last two years.

By expanding the 7(a) standard, a greater number of larger companies will qualify for the program.

The 504 program is primarily used for the financing of larger, longer-term fixed assets such as real estate, which is offered in partnership with a community development corporation and could not be used to refinance existing debt. However, this was expanded to allow for refinancing.

Also reintroduced was The America’s Recovery Capital Loan Program (ARC). This new program provides loans to companies experiencing challenges as a result of the downturn. Qualified borrowers are able to get up to $35,000 to cover principal and interest payments on their existing debt; the government offers a 100 percent guaranty to the lender.

How can a business take advantage of these new programs?

Talk to your local bank, as most are affiliated with the SBA program. You can also talk to your SBA district office or find information at There are also small business development corporations that are interested in helping businesses meet their financial needs, or you can partner with other financial institutions for help.

Most of the requirements for these initiatives are pretty standard compared with the regular SBA program; for example, nonprofit companies and businesses involved in the gambling industry are not eligible. Companies are limited by either their sales size or the new alternative standard.

How has an improving secondary market helped businesses seeking SBA loans?

One of the advantages of the 7(a) loan is that the guaranty portion of the loan is very liquid. This gives the banks the ability to sell the guaranty in the secondary market. The fee received from the sale provides additional capital for the bank that can be used to help them make more loans.

But a number of lenders were not able to do loans once the recession hit and the secondary market started declining. Without that source of capital many of these lenders greatly reduced or stop doing SBA loans. The government and Treasury Department have done several things to shore up this market. As the economy has improved, so has the confidence in the secondary market, and many investors have come back.

Premiums in the secondary market have gone from 1 percent at the end of last year to an average range between 5 and 7 percent.

How will businesses benefit from these initiatives?

It gives them a greater opportunity to access the capital they need. It also potentially makes banks a little more willing to finance borrowers during these troubled times. Trends have been declining as a result of the economy, so with the additional protection through guaranties, banks are more willing to accept these customers and recognize their temporary weaknesses.

Borrowers are also more encouraged because the cost of borrowing through the SBA is lower. And banks also have a higher guaranty, so borrowers have a better chance of getting financing than they would have before these changes.

john Guy is the senior vice president of Small Business Administration and alternative lending with Fifth Third Bank. Reach him at (513) 534-7108 or

Friday, 25 September 2009 20:00

Finding the facts

Several amendments have been made this year to employment law that have a significant impact on your business. Employers need to be aware of changes to minimum wage and COBRA insurance, along with other proposed changes regarding sick leave pay. Employees can lose out on additional benefits if you do not inform them of these new rules in a timely manner.

“Many individuals on COBRA were not aware that they could reduce their premium once the new law went into effect,” says Melissa Hulsey, president and CEO of Ashton. “Lawsuits can also be filed and fines assessed if you do not comply with the new laws.”

Smart Business spoke with Hulsey about recent changes made in employment law and how to make sure your company is prepared.

What were the recent changes made to minimum wage?

The federal minimum wage was raised to $7.25 an hour on July 24. This was part of a Fair Labor Standards Act amendment passed in 2007 to incrementally increase the minimum wage over a three-year period. The act establishes minimum wage, overtime pay, record keeping, and youth employment standards for public and private sector employees.

Minimum wage employers need to update their official postings of FLSA requirements due to this change. Some states also have their own minimum wage laws, so check with your state to see if the higher wage prevails.

What should employers know about the recent changes made to COBRA?

The American Recovery and Reinvestment Act of 2009 included premium reductions and additional election opportunities for health benefits under COBRA. Eligible individuals will now pay only 35 percent of the premium, while the remaining 65 percent will be reimbursed through a tax credit. Previously, individuals with COBRA paid up to 102 percent of the premium: 100 percent of the cost, and a two percent administrative fee.

This adjustment will last for nine months, half of the 18-month COBRA eligibility period. Although businesses are reimbursed, this has created a burden for some, as premiums are generally due before the tax credit is issued.

What other employment laws should businesses be aware of?

The U.S. Department of Homeland Security has postponed regulations requiring federal contractors to use E-Verify, the DHS’s electronic employment eligibility verifications system, effective Sept. 8. E-verify is an online system operated jointly by the Department of Homeland Security and the Social Security Administration. Employers can check the work status of new hires to make sure they are eligible to work for the company.

The Healthy Families Act was recently introduced in the U.S. House of Representatives, requiring businesses with 15 or more employees to provide paid sick leave. Similar legislation was introduced in 2007 but was not acted on. Recent flu concerns have given this bill a boost of public support, as people are encouraged to stay home if they are feeling ill. Business groups are opposed to the legislation, arguing that employers cannot afford additional costs in this economic climate.

The Lilly Ledbetter Fair Pay Act of 2009 was signed into law by President Barack Obama on January 29. The bill amends the Civil Rights Act of 1964, stating that the 180-day statute of limitations for filing an equal pay lawsuit regarding pay discrimination resets with each new discriminatory paycheck.

The Employee Free Choice Act, or card check bill, would allow unions to be certified without a secret ballot election if a majority of workers signed authorization cards. Labor organizations are pushing hard to pass this legislation, while the business community publicly opposes it.

How do you ensure your corporate policies are in compliance?

You need to be clear about what the changes are and how they affect your company. Make sure that all policy changes are in writing and have been appropriately reviewed prior to going public. Small businesses may need to plan ahead for any additional expenses required for these changes, such as the COBRA premiums.

Make sure your human resources department has resources available to always stay abreast of the latest changes in employment law. Staffing partners can also keep you updated on any employment law changes that occur.

How can you best communicate changes to your employees?

Give employees as much notice and information as possible of any policy changes that will affect them. Communicate the changes in writing, post them in a public area and designate someone to speak directly with employees who may have concerns regarding the changes. Make sure you also have current contact information for all current and former employees to be able to send proper notifications out. Change is scary, and having information easily accessible will help ease tensions and make for a smooth transition.

Why should companies make this a priority?

Everyone can benefit by creating a culture of information surrounding labor changes. Proudly promote the fact that your company is in compliance with all new federal or state labor laws. Be on the cutting edge of labor changes and let your employees hear it from you before they hear about it on the news.

Melissa Hulsey is the president and CEO of Ashton. Reach her at (770) 419-1776 or

Wednesday, 26 August 2009 20:00

Successful negotiations

Many business owners are facing significant increases in property insurance costs when it comes time to renew this year.

Higher than normal property losses from fire, explosion, hurricanes and floods, in addition to the impact of the financial markets, have put pressure on insurance companies to improve their cash position in the short term and eventually improve their capital base. And that means increasing rates/premiums.

Insurance companies’ costs have been increasing, as well. Treaty reinsurance — the protection insurance companies buy to limit their portfolio exposure — has been increasing throughout 2009. Considering this, insurance company underwriters are becoming more conservative, which can add significant cost for business owners when it comes time to renew their property insurance policies.

“People need to recognize what’s going on in the property insurance market and identify early a strategy to contain costs on their insurance program,” says Bill Novak, assistant director of Aon’s National Property Brokerage Group (Aon Risk Services Central, Inc., Southfield, Mich).

Smart Business spoke with Novak about how to mitigate the potential for increased cost, the steps to effectively negotiate a property insurance renewal and how to leverage your options.

How can CEOs mitigate the potential for increased insurance costs when it comes time to renew their policies?

Negotiating property insurance is similar to negotiating a loan or line of credit. The better the information, the more confidence an underwriter has in your operations.

This means understanding your risk profile so that you can effectively represent your risk in the most positive light. Are your facilities constructed and protected appropriately for your particular operations? If they are, this is a tremendous negotiating point. If not, what other steps do you take to protect your property/business income? Interest in loss prevention is the No. 1 quality insurance companies look for in underwriting property insurance.

How can a business effectively negotiate a property insurance renewal?

Besides understanding your risk profile, start early. Develop a comprehensive submission to the market, just as you would for a loan, outlining the positive characteristics of your risk in a clear and concise manner.

The quality of information you provide is important because underwriters will use this to base their available insurance capacity and pricing. This is particularly important if you have property exposed to catastrophic losses such as coastal windstorm, flood or earthquake.

These exposures, if significant, are best underwritten with information not readily available and may require inspections by independent engineering services. People need to recognize that many underwriters must now rely on sophisticated computer models to evaluate these catastrophe exposures prior to quoting coverage.

If you do not have the information required to run these models, the quotes you receive can be adversely impacted through lower capacity/higher premium.

Historically, underwriters looked at COPE (Construction, Occupancy, Protection and External Exposure) information to underwrite property risks. Today, however, underwriters are being required to evaluate more information as part of the underwriting process, so you have to provide more information to get the best rates (premium).

For example, many underwriters now evaluate the quality (adequacy) of your values as the basis for providing a quotation.

If you understand what underwriters are looking for and provide complete risk profile information in your submission to the market, you will get a better result.

How early does a company need to begin the renewal process?

It depends. If you have good information, you should start discussing your marketing strategy 90 days before your renewal and provide a complete submission to the market about 60 days before renewal. This allows you time to implement a strategy rather than simply hoping for a good outcome.

The key is to understand and control the process to the extent possible rather than have the underwriting process control you. Anticipating problems, questions and possible site inspections minimizes the types of surprises that CEOs prefer to avoid.

If you don’t have good information about your risk, you should start as early as 120 days out to gather and understand all the required information. This puts you in a position to get quotes back in a reasonable amount of time before your renewal date so you can still have time to negotiate options.

Why is it important to be prepared going into the process and to evaluate your potential options?

You don’t want to be reacting to what the market is doing; you want to be anticipating and positioning yourself to get the best possible result. This requires understanding the options available to you that can have an impact on pricing, terms and conditions.

This can vary significantly depending on your unique risk profile, but deductibles, limits of liability and valuation are common areas where meaningful options can be developed.

Loss prevention improvements can also be an important consideration when negotiating pricing. You can’t implement options unless you’ve evaluated them.

The best way to position yourself for your renewal is to understand your options in advance and develop an appropriate renewal strategy.

Bill Novak is assistant director of Aon’s National Property Brokerage Group with Aon Risk Services Central, Inc., Southfield, Mich. Reach him at (248) 936-5257 or